Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/240637
Authors: 
Jolakoski, Petar
Jovanović, Branimir
Madjoska, Joana
Stojkoski, Viktor
Tevdovski, Dragan
Year of Publication: 
2021
Series/Report no.: 
wiiw Working Paper No. 194
Publisher: 
The Vienna Institute for International Economic Studies (wiiw), Vienna
Abstract: 
If firm profits rise to a level far above than what would have been earned in a competitive economy, this might give the firms market power, which might in turn influence the activity of the government. In this paper, we perform a detailed empirical study on the potential effects of firm profits and markups on government size and effectiveness. Using data on 30 European countries for a period of 17 years and an instrumental variables approach, we find that there exists a robust relationship between firm gains and the activity of the state, in the sense that higher firm profits reduce government size and effectiveness. Even in a group of developed countries, such as the European countries, firm power may affect state activity.
Subjects: 
firm profits
government size
government effectiveness
JEL: 
C23
H11
H50
Document Type: 
Working Paper

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